Informality and the Cost of Children in Developing Countries

Fernando Gomes Mattar, Breno Sampaio, and Gabriel Ulyssea

Small Research Grant

In many lower-income countries, women are over-represented in the urban and non-agricultural informal sectors. Labour market informality is typically associated with worse labour market outcomes such as low wages, job instability, and lack of social protection. Additionally, women in the informal sector are often more likely to be working in vulnerable contexts, for example, as domestic workers, home-based workers or contributing family workers. On the other hand, informal work arrangements, particularly self-employment, offer greater flexibility that can be a desirable amenity for women with childcare responsibilities. This project analyses the extent to which fertility decisions and the presence of children in the household affect the choices of men and women to work in the formal or informal sectors, and the ensuing life-cycle costs in terms of participation, earnings, hours, human capital, and job stability.

This project leverages multiple sources of administrative data on fertility and labour supply in Brazil to construct a uniquely rich dataset containing, at the individual level, long-term longitudinal labour supply information in the formal sector and complete reproductive histories of workers. The subsequent methodology employs a life-cycle model of fertility and labour supply decisions. This structural approach is necessary, primarily due to the endogeneity of the decision process but also to connect the formal labour supply data with informal labour supply data from household surveys. The model is then estimated, and counterfactual exercises are performed by simulation of the model using the estimated parameters.

The lessons derived from this research will be important for understanding the labour supply behaviour of women in low-income countries. While Brazil is not a low-income country itself, there are significant contextual similarities with the informal labour markets in lower-income countries that will make this research useful for policymakers elsewhere in the world. High rates of informality, especially among women with disproportionate childcare responsibilities, and the consequent impact on labour market outcomes has relevance in many sub-Saharan countries. The structural model and counterfactual analysis will present policymakers with direct evidence how these outcomes are impacted and how to provide women with more flexibility in the labour market with respect to fertility choices.

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